In this video, you will learn about divergence in forex trading. If you are looking for a reversal trade, then you need to learn about divergence. You need to use a leading indicator to identify divergence. So, you can catch a new trend at the earliest point and maximize on profit.
There are two types of divergence observed on the chart. Bullish divergence occurs when the price makes a lower low in a downtrend, but your indicator makes a higher low. Now, it is time to go long, and you must set your stop-loss. Bearish divergence occurs when the price makes a higher high in an uptrend, but the indicator makes a lower high. Now, you can place a short trade and set a stop-loss, hoping the price to go downwards.
To observe divergence on your price chart, you can use indicators such as RSI, MACD, and Stochastics.
lower high, it is called bearish divergence. This normally precedes price moving in the opposite direction, potentially setting up a short trade.